U.S. equities climbed on Wednesday, boosted by corporate earnings and better-than-expected economic data.
The S&P500 climbed +1.56% on Wednesday boosted by technology +2.69% and consumer discretionary +2.52% in broad-based buying with 78.5% of stocks higher while energy lagged -2.97% on lower oil prices. The Nasdaq Composite rose +2.59%, as did the Dow Jones +1.29% and Russell 2000 +1.41% with the VIX retreating -8.27% to 21.95. Solid earnings reports from both Moderna and PayPal saw their shares prices climb +15.97% and +9.25% respectively, boosted sentiment for technology shares.
The yield curve flattened as the market repriced interest rate expectations following hawkish comments from Federal Reserve policymakers earlier this week. The 2-year yield rose +1.4 basis points to 3.063% while the 10 and 30-year rates were -4.5 and -5.7 basis points lower at 2.703% and 2.949% respectively pushing the yield spread further into inversion. Many key spreads remain inverted, signalling that the market expects the Federal Reserve to continue raising interest rates, albeit at a more modest pace going forward, which is likely to result in the need for rate cuts in the future. In economic data, the July ISM non-manufacturing PMI report unexpectedly rose to 56.7 from 55.3 previously compared to expectations of a decline to 53.5. New orders bounced back with prices paid and supplier deliveries falling a sign of easing inflationary pressures and supply chain issues although inventory and employment continue to contract.
European equities were also higher as upbeat earnings offset weakening business activity in the region. The Euro Stoxx 600 rose +0.51% along with the DAX +1.03%, CAC +0.97% and FTSE100 +0.49% with benchmarks across the region broadly higher. Shares in meal delivery company Just Eat Takeaway.com rose +5.4% after posting a smaller than expected loss for the first half of 2022 and maintained its forecasts for the year while insurer AXA climbed +5.7% after announcing a new share buyback program after net profit in the first half rose +3%. In economic news, the final reading of PMI for the Eurozone in July was slightly better than expected at 51.2 compared to estimates of 50.6 but still declined from 53 previously. Retail sales across the region for the 12 months to June declined more than expected by -3.7% compared to estimates of -1.7%.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
The ASX looks set to open higher this morning with ASX200 futures up +35 points or +0.51% to 6,913. The index pared larger losses of -1% to finish -0.32% lower on Wednesday weighed by financials -0.88% and consumer discretionary -1.23% while technology outperformed +2.18%. Pinnacle Investment Management soared +12.2% after reporting stronger than expected profits around +1.8% ahead of analysts’ forecasts with full-year profit reaching $76.4m an increase of +14% over the same period a year earlier. Shares in Lynas rose +7.6% after announcing a $500m expansion at one of its mines to meet growing demand while United Malt rose +6% after falling earlier in the week following a profit downgrade. The Australian dollar is +0.43% higher overnight at 0.6950 while the 10-year yield rose +9.8 basis points to 3.074%.
Oil prices fell on expectations of falling demand and rising crude stockpiles in the U.S. offset a smaller than expected production increase by OPEC+. The group announced an increase of 100k barrels per day to its production targets, a token increase accounting for +0.1% of global demand. Meanwhile, crude oil inventories for the week ending July 29th unexpectedly rose by +4.467m barrels compared to estimates of a -629k barrel draw with gasoline inventories also posting an unexpected rise of +163k barrels versus estimates of -1.614m. Both WTI and Brent crude were -3.72% and -3.39% lower at US$90.91 and US$97.13 a barrel. Iron ore futures in Singapore were -4.13% lower following declines in Chinese PMI and ongoing crisis for Chinese property developers with futures also -0.66% lower this morning at US$109.20. Gold rose +0.28% to US$1,765 an oz along with silver +0.43% to US$20.06 and Bitcoin +1.29% to US$23,327.
Economic data:
- Australian Balance of Trade (MoM Jun) 11:30
- Bank of England Rate Decision 21:00
- U.S. Initial Jobless Claims (30th Jul) 22:30
- Fed Mester Speech 02:00
This article was written by James Woods, Portfolio Manager, Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3632.
